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August 17, 2010

On the money: Wal-Mart in U-turn on Project Impact initiatives

Wal-Mart announced today (17 August) that it would be reversing a number of the changes it made as part of its "Project Impact" plan, which saw it reformat many of its US stores.

Wal-Mart announced today (17 August) that it would be reversing a number of the changes it made as part of its “Project Impact” plan, which saw it reformat many of its US stores.

The US retail giant saw its international operations drive its growth during its second quarter but its domestic market has become a cause for concern. During the three months to 31 July, Wal-Mart posted its fifth consecutive decline in US comparable-store sales, falling 1.8%.

Commenting on the u-turn, Wal-Mart president and CEO Mike Duke said: “They’re moving rapidly to building on initiatives that worked and adjusting those that have not worked.”

The company is working to turnaround sales in the division, reversing a number of the initiatives it launched as part of its Project Impact scheme.

Initiatives from its much hyped Project Impact scheme that are set to be changed include its rollback promotions, assortment rationalisation, and returning promotions to its streamlined ‘Action Alley’ – the aisle that runs across the centre of the store.

Recently-appointed Wal-Mart US president and CEO Bill Simon signalled the failure of the rollbacks and said the company would be putting the emphasis back on its core EDLP model. “The deep rollbacks we featured in May and June did improve price impression but they did not generate the level of top line sales we’d hoped for,” he said.

Simon added that investments in rollbacks caused a decrease in operating income of 22 basis points, as its gross margin rate was down year-over-year.

The company is also reviewing its aggressive product rationalisation scheme, which according to Planet Retail data led to it cutting the number of SKUs it offered in its Supercenters by approximately 15% last year. Industry watchers said that the rationalisation drove customers away as key items have not been in-stock, and the company’s about-face suggests this has been the case.

Simon said that the retailer has “engaged with suppliers to review its assortment to ensure it offers the breadth of inventory that Walmart customers have come to expect”.

“In the coming weeks and months, our assortment will be more relevant to our customers, with the right mix of new and innovative products,” he said. “We are restoring thousands of products to our assortment and adding new items. We plan to win in every category and let customers decide through their purchase decisions what to include in our assortment.”

Simon announced the retailer has returned merchandise to its Action Alley in the past six weeks. Last year, Wal-Mart removed promotional displays from the centre aisle to improve sight-lines and reduce clutter in its stores. “Our store managers now have more autonomy to make decisions on what’s right for their customers. We believe it will take some time to see significant changes in comp sales, but we are beginning to see more encouraging traffic trends,” he said.

These changes have meant that inventory is up 4.4% on the previous year, due to more inventory in its Action Alley and and increased assortment. But Simon added it is is still low when compared to historical levels. “It’s well below the July 2007 and the July 2008 levels of inventory,” he said.

However, there was some positive news for the retailer’s US operations, with Simon announcing slightly positive comparative sales for its grocery division. “The more aggressive rollbacks did not generate the overall sales lift we expected, but we did see a sequential improvement in grocery traffic during the quarter,” he said, adding that it saw significant gains in the soft drinks and snacks categories.

Despite the U-turns on a number of its recent strategies, Simon remains positive about the US division’s potential for improvement in the second half of the year. “We’re confident that the changes we’re making will improve top line sales by the fourth quarter. We’re focused on the right assortment, price leadership driving traffic and delivering an unbeatable customer experience in our stores.”

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